Fed Vice Chair Fischer Has Made Very Clear Where He Sits On The Hawk-Dove Scale

When Stanley Fischer advanced as the frontrunner to join the
Federal Reserve as vice chair, there was some concern that he and
Fed Chair Janet Yellen might
butt heads.

But in a speech given earlier Monday in Stockholm, the now Fed
Vice Chair confirmed pretty clearly where he sits on the the
hawk-dove scale.

"So much for speculation that the new Fed Vice Chairman would
become a Janet Yellen critic," said Potomac Research Group's Greg
Valliere. "Fischer stated in a speech in Sweden this morning that
U.S. and global recoveries are "disappointing," and may have
permanently lowered GDP potential. The media gives
disproportionate coverage to a noisy band of Fed hawks, but the
center of power at the Fed is firmly in the dovish camp."

"With few exceptions, growth in the advanced economies has
underperformed expectations of growth as economies exited from
recession," said Fischer in his speech titled "The
Great Recession: Moving Ahead." "Year after year we have had
to explain from mid-year on why the global growth rate has been
lower than predicted as little as two quarters back. Indeed,
research done by my colleagues at the Federal Reserve comparing
previous cases of severe recessions suggests that, even
conditional on the depth and duration of the Great Recession and
its association with a banking and financial crisis, the
recoveries in the advanced economies have been well below
average."

Stanley
FischerREUTERS/Yuri
Gripas

Referencing the work of Carmen Reinhart and Ken Rogoff, Fischer
warned "is also possible that the underperformance reflects a
more structural, longer-term, shift in the global economy, with
less growth in underlying supply factors."

Fischer articulated his worries about tightening labor supply.

"The considerable slowdown in the growth rate of labor supply
observed over the past decade is a source of concern for the
prospects of U.S. output growth," he said. "There has been a
steady decrease in the labor force participation rate since 2000.
Although this reduction in labor supply largely reflects
demographic factors — such as the aging of the population —
participation has fallen more than many observers expected and
the interpretation of these movements remains subject to
considerable uncertainty."

All of this seems to suggest that Fischer will continue to
support the Yellen-Fed's plan to keep interest rates low for a
very long time.